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Black-Markets for Currency, Hoarding Activity and Currency Reform

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  • Linda S. Goldberg
  • Il'dar Karimov

Abstract

In the former Soviet Union and throughout Eastern Europe, black-market exchange rates and second-economy prices often are interpreted by policy-makers as indicative of post-reform levels. However, these exchange rates and prices can provide highly-biased signals for policy setting. These biases are especially important when exchange rates fixed on the basis of these signals are expected to play a nominal anchor role during stabilizations. This paper traces the paths and biases in black-market exchange rates, second-economy prices, hoarding stocks. and privately-held dollars balances after policy-initiatives or other changes in the economic environment are implemented. The stimuli studied are official exchange-rate adjustments, price reforms, foreign-aid packages, altered risks of monetary confiscation or currency reforms, and goods-supply related initiatives. We provide the conditions under which announcements of reform lead short-run prices or exchange rates to overshoot or to undershoot their long-run equilibrium levels.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4153.

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Date of creation: Aug 1992
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Publication status: published as Journal of International Economics, 1997, vol.43/1-2
Handle: RePEc:nbr:nberwo:4153

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  1. Linda S. Goldberg & Il'dar Karimov, 1991. "Internal Currency Markets and Production in the Soviet Union," NBER Working Papers 3614, National Bureau of Economic Research, Inc.
  2. Kharas, Homi & Pinto, Brian, 1989. "Exchange Rate Rules, Black Market Premia and Fiscal Deficits: The Bolivian Hyperinflation," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 435-47, July.
  3. Dornbusch, Rudiger, et al, 1983. "The Black Market for Dollars in Brazil," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 25-40, February.
  4. Wilson, Charles A, 1979. "Anticipated Shocks and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 639-47, June.
  5. Kamin, Steven B., 1993. "Devaluation, exchange controls, and black markets for foreign exchange in developing countries," Journal of Development Economics, Elsevier, vol. 40(1), pages 151-169, February.
  6. de Macedo, Jorge Braga, 1987. "Currency inconvertibility, trade taxes and smuggling," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 109-125, October.
  7. Pinto, Brian, 1991. "Black markets for foreign exchange, real exchange rates and inflation," Journal of International Economics, Elsevier, vol. 30(1-2), pages 121-135, February.
  8. Agenor, P.R., 1992. "Parallel Currency Markets in Developing Countries : Theory, Evidence, and Policy Implications," Princeton Studies in International Economics 188, International Economics Section, Departement of Economics Princeton University,.
  9. Stahl, Dale II & Alexeev, Michael, 1985. "The influence of black markets on a queue-rationed centrally planned economy," Journal of Economic Theory, Elsevier, vol. 35(2), pages 234-250, August.
  10. Ofer, Gur & Pickersgill, Joyce, 1980. "Soviet Household Saving: A Cross-Section Study of Soviet Emigrant Families," The Quarterly Journal of Economics, MIT Press, vol. 95(1), pages 121-44, August.
  11. Weitzman, Martin L, 1991. "Price Distortion and Shortage Deformation, or What Happened to the Soap?," American Economic Review, American Economic Association, vol. 81(3), pages 401-14, June.
  12. Guillermo A. Calvo & Jacob A. Frenkel, 1991. "From Centrally Planned to Market Economy: The Road from CPE to PCPE," IMF Staff Papers, Palgrave Macmillan, vol. 38(2), pages 268-299, June.
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